How Do I Start Saving for Retirement?

Saving money is a worthwhile goal, but it is important to remember that money is just a means to an end. Actually, money is a means to several ends, which is why it is so important to set clear financial priorities. Otherwise, you might never accomplish the financial goals that are most important to you.

How Do I Start Planning for Retirement?

Setting priorities will help you meet your most important financial goals in three ways:

  • It will allow you to quantify just how much money you'll need to meet your various goals, so you can set your savings targets accordingly.
  • It will help you deal with conflicts between different goals, to make sure that you save for the most important things first.
  • It will give you specific, tangible reasons for saving, which will help motivate you to make the necessary sacrifices to stay on budget.

How to Set Financial Goals

How does the process of setting financial goals work? Try these steps:

  1. Figure out your lifestyle priorities. First, you have to think about what is really important to you. Start with your responsibilities--preparing for retirement, putting kids through college, etc. Then move on to your material desires. Is owning a big house important to you? Do you have a utilitarian view toward the cars you drive, or do you like to make an impact with something flashy? Do you someday hope to travel? The point is, all these lifestyle goals--both the necessities and the luxuries--require savings. The starting point for figuring out how much money you might need is deciding what you want.
  2. Get your debt under control. If you have accumulated debt, your savings program is starting out in a little bit of a hole, so your first priority is to get that debt under control. Certainly, you should be sure you are making payments to avoid late fees and credit problems, and you should be on a path toward reducing debt over time. However, controlling your debt does not necessarily mean paying off all your debt as soon as possible. Get rid of high-interest debt as soon as you can, but if you have low-interest debt, such as a student loan, or tax-advantaged debt, such as a mortgage, it might be to your advantage to continue to use these relatively low-cost sources of capital and prioritize goals such as saving for retirement.
  3. Identify the unavoidable expenses. As mentioned before, your financial goals will consist of both necessities and desires, and at this point you need to make a distinction between the two. Be sure to list saving for retirement among the necessities. It may seem far off, but when you think about living off those savings for years, you'll realize how essential it is to build your retirement funds as early as possible.
  4. Rank your financial goals by importance. Now go back to those non-essential financial goals, and rank them by importance. If you are married or have a long-term relationship in which your finances are integrated, be sure to include your spouse or partner in this discussion. A committed relationship means sharing in both the sacrifices and the rewards of financial planning, so you need to work together on setting savings goals and spending rules.
  5. Arrange your top priorities by date. Take the unavoidable expenses you have identified, and arrange them into a schedule by date. You'll then need to do some long-range budgeting to see how you will save for these expenses by those dates. Next, if you have room left in your budget, start to fit your highest non-essential priorities into the schedule. This will give you an idea of when some of those dreams might come true. Also, putting a specific date on those financial goals might motivate you to earn more and/or save more so you can reach those goals sooner.
  6. See if there is room for lower-ranked priorities. As you move beyond your top priorities, continue through your list of financial goals to see if there is room in your budget for those lower-ranked priorities. You may find some of those lower priorities are pushed far back on the schedule, or have to be dropped altogether. That's okay--by going through this process, you'll be able to clearly identify which high-priority goals you are going to meet by not spending money on the lower priorities. Also, it is good to always have additional goals to shoot for if your financial condition improves.

There are relatively few people who have the financial means to fulfill every one of their material dreams. However, by prioritizing your financial goals, you can at least improve your chances of being able to afford the things that will be most important to you throughout your life.

This Guide to Money answer includes the topics: retire, Planning for retirement.

Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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